The following worked for me:
a) In command line go to the folder that contains your extjs folder (say - 'parentFolder')
b) Keep your custom css file in parentFolder
c) Create the folder where you want the generated images to be in parentFolder
So the final structure is:
|Now run the following command:
'C:\parentFolder>ext-theme -d ./ext-4.0.1 -c application.css -o themesFolder -v '
Note: I used the SenchaSDKTools-1.2.2\ext-theme.exe